INCOME TAXES

As of April 30, 2014, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $1.0 million of which $.7 million would decrease the Company’s income tax expense and effective income tax rate if the tax benefits were recognized. A reconciliation of the activity related to the liability for gross unrecognized tax benefits for the six months ended April 30, 2014 is as follows (in thousands):



Balance as of October 31, 2013		$1,072
Increases related to current year tax positions	54
Settlements	(22		)
Lapse of statutes of limitations	(60		)
Balance as of April 30, 2014		$1,044

There were no material changes in the liability for unrecognized tax positions resulting from tax positions taken during the current or a prior year, settlements with other taxing authorities or a lapse of applicable statutes of limitations. The accrual of interest and penalties related to the unrecognized tax benefits was not material for the six months ended April 30, 2014. Further, the Company does not expect the total amount of unrecognized tax benefits to materially change in the next twelve months.

The Company’s effective tax rate in the first six months of fiscal 2014 increased to 32.9% from 31.3% in the first six months of fiscal 2013. The increase is principally due to an income tax credit for qualified research and development activities for the last ten months of fiscal 2012 that was recognized in the first quarter of fiscal 2013 resulting from the retroactive extension of Section 41 of the Internal Revenue Code, "Credit for Increasing Research Activities," in January 2013 to cover the two-year period from January 1, 2012 to December 31, 2013 and the expiration of Section 41 on December 31, 2013 that limited the tax credit recognized in the first six months of fiscal 2014 to just the first two months of fiscal 2014 qualified research and development activities. Additionally, the increase is partially the result of a larger income tax deduction recognized in the prior year under Section 404(k) of the Internal Revenue Code for the special and extraordinary cash dividend paid in December 2012 to participants of the HEICO Savings and Investment Plan holding HEICO common stock. These increases were partially offset by the impact of a reduction in accrued contingent consideration during the first six months of fiscal 2014 associated with a fiscal 2013 acquisition acquired by means of a nontaxable stock transaction.

The Company’s effective tax rate in the second quarter of fiscal 2014 decreased to 31.8% from 34.1% in the second quarter of fiscal 2013. The decrease is principally attributed to the impact of a reduction in accrued contingent consideration associated with a fiscal 2013 acquisition acquired by means of a nontaxable stock transaction.